TMI Blog2013 (11) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... e India of raw material, components or Plant & Machinery, so long as exemption granted is valid, the interest received by the other party is not covered by the IT Act and by virtue of exemption granted by the Central Govt., the question of TDS on the above amount does not arise at all. Since there is no requirement of TDS, question of disallowance under section 40(a)(ia) for non deduction of tax also does not arise - Once the interest income is not taxable in the hands of the recipient and was exempted by the Government of India, then there is no question of TDS on the interest paid and consequently, no disallowance under section 40(a)(i) is called for. Disallowance of depreciation, consequent to adjustments made by AO reducing the cost of plant & machinery to the extent of waiver of amounts, since the borrowed fund was utilized for acquisition of plant and machinery - Assessee company has taken long term advances from a foreign customer, CMC Trading AG, Switzerland in an earlier year. The advance was to be repaid through export of steel manufactured by the company and the outstanding advance was subject to interest payment by the company. These advances were funded by the forei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Progress of these expansion projects as expenditure during construction period. Since these represent revenue In nature and incurred for the purpose of the expansion of the existing business of the company, these expenditure had been claimed so In the computation of Income. These expenses had not been incurred for starting any new business. This project was a part of existing business and therefore expenditure incurred was for the existing business. In view of the facts, we had claimed the revenue expenses Incurred for the said expansion. Further, we would like to submit that the treatment in the books of accounts Is not decisive of the nature of transaction. Particular deduction for an expense depends upon the provision of law and not on the nature of entries in the books. Since the aforesaid expenses were incurred for the expansion of existing business and revenue in nature therefore we were eligible to claim the said expenses irrespective of their accounting treatment in the books of account. 4. The Assessing Officer did not accept the assessee s contention and observed that the assessee was involved in the manufacturing of hot rolled and cold rolled steel and now the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the Assessing Officer. 8. Before us, the learned Counsel, Mr. Vijay Mehta, on behalf of the assessee, submitted that similar issue had arisen in assessee s own case in the earlier years viz. 1994-95, 1996-97, 1998-99 to 2000-01 and 2001-02 to 2004-05 and in all these years, the Tribunal has held that the expenditure incurred for expansion of business or increase in capacity for existing plant should be treated as revenue expenses. He also clarified that the assessee has not claimed the entire interest and, therefore, the proviso to section 36(1)(iii) is not applicable in assessee s case. 9. On the other hand, learned Departmental Representative strongly relied upon the findings of the Assessing Officer and the learned Commissioner (Appeals). 10. We have heard the rival contention and perused the relevant material available on record. On a perusal of the order of the learned Commissioner (Appeals), it is seen that the learned Commissioner (Appeals) has not examined as to what was the nature of expenses and whether it was spent for increase in the capacity for existing plant or for the expansion of business or for entirely new line of business. He has simply held that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to pay any advance tax on account of future amendment which has been brought in the statute with retrospective effect. He submitted precisely this issue is answered by the Hon ble Calcutta High Court in Emami Ltd. v/s CIT, [2011] 337 ITR 470 (Cal.). He also submitted that in the other case of sister concern, the Tribunal has decided this issue in favour in Essar Investments Ltd. v/s CIT, ITA no.6444/Mum./2011, after following the decision of Hon ble Calcutta High Court. 14. Learned Departmental Representative, on the other hand, relied on the order passed the learned Commissioner (Appeals).6223691728 15. We have heard the rival contention and also perused the relevant findings of the authorities below. There is no quarrel with the proposition that the provisions of section 234B and 234C are mandatory in nature once it has been established that the assessee had liability to pay advance tax as provided in sections 207 and 208, on the book profit. The Hon'ble Supreme Court in CIT v/s Rolta India Ltd, [2011] 330 ITR 470, has held that even the assessment under section 115JB, provisions relating to payment of advance tax are applicable where book profit is deemed to be the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded provision of s. 115JB having come into force w.e.f. 1st April, 2001, the appellant cannot be held defaulter of payment of advance tax. As pointed out earlier, on the last date of the financial year preceding the relevant assessment year, as the book profit of the appellant in accordance with the then provision of law was nil, we cannot conceive of any "advance tax" which in essence is payable within the last day of the financial year preceding the relevant assessment year as provided in ss. 207 and 208 or within the dates indicated in s. 211 of the Act which inevitably falls within the last date of financial year preceding the relevant assessment year. Consequently, the assessee cannot be branded as a defaulter in payment of advance tax as mentioned above. At this stage, we may profitably rely upon the observations of the Supreme Court in the case of Star India (P) Ltd. vs. CCE (2006) 201 CTR (SC) 63 : (2006) 280 ITR 321 (SC) strongly relied upon by Mr. Bajoria, where the apex Court in the context of imposition of service tax by the Finance Act, 2002 with retrospective effect held that the liability to pay interest would arise only on default and is really in the nature of quas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set aside to the extent indicated above. Thus, we hold that no interest under section 234B can be levied on account of such retrospective amendment in section 115JB and, accordingly, this ground is treated as allowed. 16. In the third ground, the assessee has challenged the disallowance of levy of encashment of Rs. 2,45,46,516, by invoking the provisions of section 43B. 17. The assessee, in the computation of income, has added back leave encashment expenses of Rs. 2,45,46,516, being expenses incurred during the year but not paid before the due date of filing of return of income for the assessment year 2007-08 i.e., 31st October 2007. Before the Assessing Officer, it was submitted that such a disallowance is not covered by the provisions of section 43B and various case laws were relied upon including that of the judgment of Hon ble Supreme Court in Bharat Earth Mover, [2000] 245 ITR 428 (SC) and the judgment of Hon ble Calcutta High Court in Exide Industries v/s Union of India, [2007] 292 ITR 470 (Cal.). The Assessing Officer has disallowed the claim merely on the ground that the Revenue has not accepted the decision of Hon ble Calcutta High Court and SLP has been filed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Exide Industries Ltd (supra) is still pending. Ld A.R. further submitted that Kolkata Benches of. the Tribunal vide order dated 30.1.2012 in I.T.A. Nos.1376 1377/Kol/2010 and I.T.A. No.858/Kol/2011 in the case of S.R. Batliboi Associates vs. DCIT by following its earlier decision in the case of DCIT vs. M/s. Ernst Young Pvt Ltd. in I.T.A. No.1787/Ko//2008 had set aside the orders of authorities below on this point and restored back to the file of AO for adjudication afresh as per decision of Hon'ble apex Court in the case of Exide Industries(supra). Ld A.R. submitted that issue involved could be set aside to the file of AO with the direction to decide the same in the light of decision of Hon'ble apex Court in the case of Exide Industries (supra) or in the light of decision of Hon'ble Bombay High Court in the case of Universal Medicare Pvt Ltd (supra). 6. We have carefully considered the orders of authorities below as well as submissions of ld. Representatives of parties in the light of decisions cited before us. 7. We observe that Mumbai Tribunal by its order daed 30.3.2009 in the case of Universal Medicare Pvt. Ltd. (supra) allowed the claim of provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also held that similar issue has been dealt by the Assessing Officer in the assessment order for the assessment year 2000-01 to 2006-07. Accordingly, he made the disallowance of Rs. 25,91,319 under section 40(a)(ia). 25. Before the learned Commissioner (Appeals), detail submissions were made which has been dealt with by the learned Commissioner (Appeals) at Page-3. The learned Commissioner (Appeals), following the appellate order for the assessment year 2006-07, held that there is no requirement for deducting the TDS on such interest and, therefore, no disallowance under section 40(a)(i) can be made. 26. Before us, it has been pointed out that this very issue has come up for consideration before the Tribunal in the earlier years for the assessment years 2001-02 to 2004-05, wherein it has been decided in favour of the assessee. 27. Learned Departmental Representative also agreed that this issue is covered by the earlier order of the Tribunal in assessee s own case. 28. After carefully considering the relevant observations of the Assessing Officer and the learned Commissioner (Appeals) and also the earlier year s order, we find that this issue has been dealt by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f recipient and was exempted by the Govt. of India, question of TDS on the interest paid by assessee does not arise. Therefore, the ground has no merit and accordingly rejected. Thus, following the aforesaid decision, we also hold that once the interest income is not taxable in the hands of the recipient and was exempted by the Government of India, then there is no question of TDS on the interest paid and consequently, no disallowance under section 40(a)(i) is called for. Thus, ground no.1, raised by the Revenue is treated as dismissed. 29. Ground no.2, relates to disallowance of Rs. 23.24 crores in respect of depreciation claimed on WDV on plant and machinery. 30. Before us, it has been admitted by both the parties that the issue is squarely covered by the decision of the Tribunal in assessee s own case for the assessment years 2001-02 and 2004-05. The relevant facts and findings of the Tribunal as discussed from Para-42 to 47 are reproduced herein below:- 42. Ground No.2 pertains to the issue of deleting the disallowance of Rs. 81,04,05,885 of depreciation consequent to adjustments made by AO reducing the cost of plant machinery to the extent of waiver of amounts, si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .) ii) CIT vs. Tata Iron Steel Co. Ltd (1998) 231 ITR 285 (SC). 45. It was the contention that the waiver of loan cannot be reduced from the WDV of plant machinery, thus the disallowance of depreciation by AO by reducing the waiver of loan from the cost of the plant and machinery is against the law. Assessee has pleaded for deletion of the disallowance of depreciation of Rs. 81,04,05,885. 46. The learned CIT (A) considered the issue and held as under: 3.5 I have perused the facts of the case. I find that the decisions relied upon by the appellant are directly on the issue under consideration and therefore in the facts of the appellant s case the disallowance of depreciation by reducing the WDV by the amount of principal loan waived is not justified. AO is accordingly directed to grant depreciation on the full value of WDV without reducing the waived principal amount of loan The learned DR relied on the orders of AO whereas the learned Counsel submitted that the learned CIT (A) granted relief by relying on the decision of the Hon'ble Supreme Court in the case of CIT vs. 231 Steel Co. Ltd (1998) 231 ITR 285 (SC) and the decision of the Hon'ble Ker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of section 32(1)(ii) can be altered is as per the situation referred to in section 43(6)(c)(i) A and B. Neither was there purchase of the relevant assets during the previous year nor was there sale, discarding or demolishing or destruction of those assets during the previous year. Thus, the recourse by the revenue to those provisions on the facts and circumstances of the instant case, it is held, cannot be sustained. The issue is than examined from the provisions of section 43(1) and Explanation 10 thereto. Waiver of loan cannot fall within scope of any of expressions 'subsidy or reimbursement' used in Explanation 10 to section 43(1) The provisions of Explanation 10 will apply only when there is a subsidy or grant or reimbursement. In the instant case, there was no such subsidy or grant or reimbursement. There was only a waiver of the amounts due for purchase of machinery which cannot fall within the scope of any of the expressions used in Explanation 10. Even otherwise section 43(1) is applicable only in the year of purchase of machinery and in the instant case the purchase of the machinery in question was not in AY 01-02. Therefore, the actual co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Commissioner (Appeals) has observed that the Assessing Officer has strongly relied upon the decision of the Hon'ble Jurisdictional High Court in Godrej Boyce Mfg. Co. Ltd. v/s DCIT, (2010), 328 ITR 081 (Bom.) and has invoked Rule 8D for making the disallowance. It was contended before him that Rule 8D is only applicable from the assessment year 2008-09 and not for the prior years. The learned Commissioner (Appeals) agreed with the contention of the assessee and following the decision of the Tribunal, Mumbai Bench, in VIP Industries, ITA no.7242/Mum./2008, restricted the disallowance at 5% of the dividend income. 34. Before us, both the parties have relied upon the respective orders. 35. After carefully considering the relevant observations and findings of the Assessing Officer and the learned Commissioner (Appeals), we agree with the contention of the learned Commissioner (Appeals) that rule 8D cannot be made applicable prior to the assessment year 2008-09. However, what is the nature of expenses, including that of interest income and whether it can be said to be attributable for earning of exempt income or not, has not been examined either by the Assessing Officer or by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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